Rupiah Weakens Beyond 12,000 a Dollar for First Time Since 2009

By Yudith Ho -
Nov 28, 2013

Indonesia’s rupiah weakened beyond
12,000 per dollar for the first time since 2009 after a failed
debt sale added to concern fund inflows are slowing on the
prospect of a cut in stimulus by the Federal Reserve.

The currency touched 12,028 per dollar, the lowest level
since March 2009, before trading 0.9 percent weaker at 11,993 as
of 2:32 p.m. in Jakarta, prices from local banks show. It slid
2.5 percent this week. In the offshore market, one-month non-deliverable forwards dropped 0.4 percent to 11,980, data
compiled by Bloomberg show. Bank Indonesia is ready to intervene
in the currency market to safeguard the rupiah’s volatility,
spokesman Difi Johansyah said today.

U.S. jobless claims unexpectedly fell last week, data
showed yesterday, after the Fed said it might reduce bond
purchases “in coming months” should the economy improve as
anticipated. The rupiah’s recent decline is due to external
factors and increased dollar demand toward the end of the month,
Bank Indonesia Governor Agus Martowardojo said yesterday. The
nation raised $190 million from its debut domestic dollar bond
sale on Nov. 25, short of the $450 million goal.

“The disappointing bond auction shows there is still an
imbalance in dollar demand and supply,” said Irene Cheung,
foreign-exchange strategist at Australia & New Zealand Banking
Group Ltd. in Singapore. “The 12,000 level is a very important
psychological level, so crossing that would make the market even
more nervous,” she said today before it was breached.

Global funds sold a net $354 million of Indonesian stocks
this month through yesterday, set for largest outflow since
August, exchange data show.

Rate Increases

A daily fixing used to settle the rupiah forwards was set
at 11,785 per dollar today, from 11,662 yesterday, according to
the Association of Banks in Singapore. One-month implied
volatility, a measure of expected moves in the exchange rate
used to price options, rose seven basis points, or 0.07
percentage point, to 14.87 percent.

“Right now, Bank Indonesia is trying to reduce the
currency’s volatility, so that people who have dollars want to
sell their dollars because there’s stability in the market,”
Bank Indonesia spokesman Difi Johansyah Johansyah told reporters
in Jakarta today.

The central bank increased the benchmark interest rate by
1.75 percentage points this year to 7.5 percent, while the
government eased mineral-export quotas and raised import taxes
on luxury goods to reduce the current-account shortfall.

The deficit narrowed to 3.8 percent of gross domestic
product last quarter, from a record 4.4 percent in the previous
period, official data show. Foreign reserves fell 18 percent
from the end of last year to $92.7 billion in July, the lowest
level since 2010. Bank Indonesia’s foreign-currency holdings
have since climbed to $97 billion in October.

Rupiah ‘Oversold’

“The rupiah is oversold as there are no strong reasons for
this rapid decline,” said Mika Martumpal, head of treasury
research and strategy at PT Bank CIMB Niaga in Jakarta. “The
significance of the 12,000 level is reduced by improved foreign
reserves and the narrowing current-account gap, which show
government measures are working.”

The yield on the nation’s 5.625 percent bonds due May 2023
climbed four basis points to 8.59 percent, prices from the Inter
Dealer Market Association show. The government plans to offer
debt maturing in March 2024 in exchange for notes due in 2014
through 2018 today.